IRS May Prompt Staff Reclassification

An Internal Revenue Service initiative could spur independent sales organizations and merchant acquirers to assess how they classify their staffs.

The IRS said this month that it plans to audit 6,000 businesses to determine whether they have properly classified workers as employees or independent contractors.

"It all comes down to money," Holli Hart Targan, the president of the Electronic Transactions Association, said at the Southeast Acquirers' Association conference this week in Atlanta.

Businesses pay payroll taxes and other employment taxes for employees and do not have as many tax obligations for independent workers.

Misclassified employees could cost employers back wages, overtime and interest, said Targan, who is also an attorney at Jaffe Raitt Heuer & Weiss in Southfield, Mich.

In an August report, the Government Accountability Office said the IRS estimated that in 1984, 15% of employers misclassified 3.4 million employees as independent contractors. The IRS last studied misclassification in the 1984 tax year.

There is no reason to suspect the merchant-acquiring industry is immune from the IRS inquiry, Targan said.